A&D executives optimistic about growth but focused on efficiency

Optimistic about growth, focused on efficiency

Aerospace and defence industry executives expect the next few years to be thrilling. While they plan to hunt aggressively to win emerging new growth opportunities, shifting growth drivers and uncertain market conditions mean they will balance their growth strategies with controlling costs and managing performance.

Highlights

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Aerospace and defence executives are certainly bullish about their growth prospects and competitive positioning, according to KPMG survey and interview participants. Almost two-thirds of our respondents say they are confident or very confident in their company’s growth prospects over the next 2 years.

“Change is everywhere and it is creating significant new opportunities for A&D players around the world,” notes Doug Gates, KPMG’s Global Head of Aerospace and Defense. “Most A&D organisations recognise that they simply can’t deliver on shareholder expectations without doing something different; it’s an extremely exciting – and increasingly risky – period for the A&D sector.”

Industry seeks new growth; trims old costs

According to our survey, A&D organisations will be much more focused on growth than they were in the past. In fact, 41 percent of our A&D respondents say it will be an extremely high priority over the next 2 years.

That being said, our data also clearly demonstrates that cost and performance management are still high on the agenda for A&D organisations, suggesting that many organisations are placing growth-oriented bets on new technologies while emphasising cost reduction and consolidation in their slower-growth or declining segments.

“A&D organisations will need to think about how they drive profitable growth in new segments while simultaneously managing costs within slower-growth segments,” notes Doug Gates. “Executives are going to need to stretch their organisations outside of their comfort zone to explore new approaches and team up with new partners that can help to rapidly and cost-effectively exploit these emerging opportunities.”

Commodity prices impact commercial aircraft sector

While some manufacturers rejoice in the continued low commodity prices (and therefore input costs), other sectors – particularly the commercial aircraft sector – may experience both benefits and significant risks should commodity prices continue to remain depressed.

“The commercial aircraft industry is always in the midst of a crisis – there is always something to worry about in the background. But as long as we continue to focus on our risks and take the right steps to manage our production and backlog, it remains an industry with strong potential,” observes Philippe Balducchi, Head of Finance Operations at Airbus.

What’s the point?

A&D organisations are highly optimistic about their growth prospects and are exploring new opportunities to drive growth. Leading A&D manufacturers are responding by:

evaluating new technologies and investing into innovation and partnerships to identify and quickly exploit new opportunities for growth

stretching their organisations to look outside of their comfort zone for opportunities that leverage existing capabilities into new markets

reassessing their cost structures to drive growth in new segments while further reducing costs and improving performance in traditional segments.